Question

Outline the differences and similarities between the different definitions of income.

Answer 1

Income is money that an individual/business receives, in exchange of providing goods or services or through some kind of financial investment.

Taxable income : Taxable income is the Income from wages, salaries, interest, dividends, business income, capital gains, and pensions. This kind of income is taxable according to the law of country in which an individual lives.

Disposable income : The income which remains after paying taxes to spend is called as Disposable income for an individual

Now we shall talk about National Income:

Gross Domestic product (GDP) : It is the total market value of goods and services produced in the domestic territory of a country in a year.

Gross National Product(GNP) : It is the market value of goods and services produced at market value in a given year both by normal residents and non residents including net factor income from abroad. for example : income of domestic residents of a country in foreign country is also included in it.

GNP = GDP + Net factor income from abroad

Net domestic product( NDP): It is the market value of goods and services in a year after providing for depreciation of capital goods.

NDP = GDP - Depreciation

Net National Product (NNP) : It is the market value of goods and services in a year produced by residents & non-residents in a country after taking into account the net factor income from abroad and providing depreciation.

NNP= NDP +Net factor income from abroad

Net National product at factor cost or National Income(NI): It shows how much it costs society to produce the output. Basically it substract all the indirect taxes taken by government and adds all the subsidies given by governmet to the NNP

NI= NNP- Indirect Taxes+Subsidies

National Income comprises of wages, interests, rent, profits and net factor income from abroad. when we substract the social security benefits and corporate tax from it. It gives Personal income(PI).

PI= NI- Social security benefits- corp tax- undistributed corp profits

when we substract the direct taxes from PI then we get personal disposable income (PDI) as discussed above

PDI = PI - Direct taxes